Opinion by Prabhudas Lilladher
NARH signed a Business Transfer Agreement (BTA) with Shiva and Shiva Orthopaedic hospital (Sparsh Hosur Road unit) located in Narayana Health City Campus, Bangalore where NARH already has two flagship hospitals operational: NH Cardiac sciences (offers only cardiac related services) and Mazumdar Shaw Medical center (multi-specialty hospital offering other than cardiac, orthopaedic, and trauma services). The company agreed to pay Rs2bn upfront and subscribe for Rs. 800mn Optionally Convertible Debentures (OCDs) to be redeemed after 4 years. NARH would have the right to convert OCDs into equity shares of the company (Shiva) in case of default. There is no intent from NARH to acquire other units of Shiva and the acquisition will be completed before CY Dec-22.
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Sparsh unit possesses 100 beds operational since a decade that has generated Rs490mn and Rs180mn revenues in FY22 and FY23 (4 months) along with healthy profitability. Flagship units of NARH in Health City generates +25-30% OPM. Assuming similar profitability levels, acquisition works out to be 16-17x EV/EBITDA and Rs 28mn/bed in FY22. Prima facie acquisition is expensive (typically cost/bed including land in metros is Rs14-15mn/bed), however it allows NARH to offer entire spectrum of healthcare services in Health city. Assuming Rs800mn money flow back to NARH after 4 years, acquisition works out to be at 12-13x EV/EBIDTA and Rs20mn/bed.